Professional Documents
Culture Documents
ABSTRACT
The data was collected from a sample of one hundred and eighty
respondents using questionnaires and face to face interviews
conducted with management staff of the bank and used for analysis.
Analyses were presented in a statistical format using mean score, vein
diagrams and ratio calculation.
2
financial statements and perceived service delivery a priority.
Managers of the bank use profitability and liquidity ratios calculated
from the various financial statements of the bank to determine their
performance.
The research was conducted on just one of the many rural banks in
Ghana and as such could lead to results which might be not
representative of what patens in rest of the many rural banks
scattered across the country.
The present study adds to the existing literature by examine the issue
of user perception of financial statements in sub-Saharan Africa i.e. a
developing economy and the issue of illiterates knowledge of financial
performance. This seeks to determine their understanding of the
bank’s performance measures.
3
ACKNOWLEDGEMENT
God, for his guidance, protection and strength throughout the period
of this research.
Thanks also to our respondents without which this research would not
have been a success.
Last but not the least, to our family members who encourage and
supported us in diverse ways to the end of the thesis.
4
GLORY BE TO GOD
ACRONYMS
RCBs RURAL AND COMMUNITY BANKS
BoG BANK OF GHANA
EBIT EARNINGS BEFORE INTEREST AND
TAXE
EPS EARNINGS PER SHARE
SME SMALL AND MEDIUM ENTERPRISE
MFI MICRO-FINANCE INSTITUTION
ICT INFORMATION AND COMMUNICATION
TECHNOLOGY
IFPRI INTERNATIONAL FOOD POLICY RESEARCH
INSTITUTE
5
FASB FINANCIAL ACCOUNTING STANDARDS
BOARD
SFAC STATEMENT OF FINANCIAL ACCOUNTING
CONCEPTS
GAO GENERAL ACCOUNTING OFFICE
MSLC MIDDLE SCHOOL LEAVING CERTIFICATE
JHS JUNOIR HIGH SCHOOL
OECD ORGANISATION OF ECONOMIC CO-
OPERATION AND DEVELOPMENT
TABLE OF CONTENT
TITLE
PAGE.......................................................................................................
....................1
ABSTRACT...............................................................................................
.............................2
ACKNOWLEDGEMENT..............................................................................
........................3
ACRONYMS..............................................................................................
...........................4
TABLE OF
CONTENT.................................................................................................
.........5
LIST OF FIGURES,
TABLE.................................................................................................7
6
CHAPTER
ONE.........................................................................................................
...........8
1.0 INTRODUCTION...................................................................................
........................8
1.1CONTENT AND
MOTIVATION....................................................................................8
1.2 RESEARCH
FOCUS.....................................................................................................
..9
CHAPTER
TWO........................................................................................................
...........11
2.0 LITERATURE
REVIEW...............................................................................................
.11
2.1.1 BALANCE
SHEET......................................................................................................
11
2.1.2 INCOME
STATEMENT.............................................................................................
..12
2.1.4 FINANCIAL
PERFORMANCE..................................................................................13
7
2.4 INVESTORS
PERCEPTION.........................................................................................1
9
2.5.1
VISION.....................................................................................................
..................21
2.5.2
MISSION...................................................................................................
.................22
CHAPTER
THREE.....................................................................................................
........23
3.0 METHODOLOGY..................................................................................
.....................23
3.1
INTRODUCTION.......................................................................................
..................23
3.2 RESEARCH
DESIGN..................................................................................................2
3
3.4 RESEARCH
INSTURMENT.......................................................................................24
8
CHAPTER
FOUR.......................................................................................................
........26
4.0 RESEARCH
FINDINGS............................................................................................
..26
4.1
INTRODUCTION.......................................................................................
..................26
CHAPTER
FIVE.........................................................................................................
........38
5.1
CONCLUSION...........................................................................................
..................38
5.2
RECOMMENDATION.................................................................................
...............38
REFERENCE.............................................................................................
.........................39
APPENDIX................................................................................................
.........................41
LIST OF FIGURES
9
FIGURE 1.1: OUTLINE OF THE
THESIS......................................................................10
LIST OF TABLES
TABLE 1.1: TABLE OF GROWTH OF RCB’s IN
GHANA..........................................9
10
TABLE 4.2: SEX OF
RESPONDENTS............................................................................27
CHAPTER ONE
1. Introduction
This research is aimed at finding the extent that investors in rural and
community banks who are expected to be mostly illiterates or semi-
literates understand financial statements of a bank and the extent that
investors perceive that their investment decision are informed by
financial statements of a bank in which they are investing. Our
purpose is also to address how management of the bank measures
their performance and how available this information is to the bank’s
investors.
11
September 2010). One of the central issues of development
economics that governments and policy makers are focusing attention
on is how to improve the socio-economic well being of the people and
thereby, reduce deprivation and misery. In Ghana, RCBs have been
established to play a major role in providing financial management
support, investment profiling and counselling to facilitate poverty
alleviation in the rural districts or communities they serve. The banks
major target groups are smallholder traders and framers (Owusu-
Frimpong, 2007).
Table 1.1 shows the number of RCBs that have been licensed over
time, grouped in five-year intervals, and their cumulative totals.
Clearly, the total has grown with time. Attention is however drawn to
the fact that in spite of the steady increase in the cumulative total,
twenty-three (23) RCBs have been closed down for not doing well,
reducing the number in business as of June, 2007 to one hundred and
twenty-two (122) out of a total of one hundred and forty-five (145)
that had been licensed.
1976 – 1980 20 20
12
Table 1.1: Table of Growth of RCBs in Ghana: 1976 – 2007,
Source: Bank of Ghana (BoG) (various issues)
13
management of the bank measure their performance as compared to
theoretical accounting standards.
The thesis is organized into five chapters. Figure 1 shows the outline
of the thesis. Chapter one consist of the introduction of the research
project while chapter two is devoted to the review of the various
literature as a theoretical framework for the study.
14
conclusions and make recommendations. At the end of the thesis, a
set of appendices are included that contain the questionnaires of the
survey forms used to collect primary data for this work.
Chapter1:
Introduction
Chapter2: Literature
Review
Chapter3: Methodology
Chapter4:Research Findings
Chapter5:Conclusion and
Recommendations
15
CHAPTER TWO
2. Literature Review
This section is divided into three subsections to cover the three main
areas of the work, financial performance, rural and community banks
and investors perception. A profile of the rural bank under research is
discussed and to end chapter a summary of the chapter and
implication of the study is discussed.
16
2.1.1 Balance Sheet
The balance sheet lists the firm’s assets and liabilities, providing a
snapshot of the firms’ financial position at a given point in time. On
the balance sheet, which is a major component of the financial
statements, reside various items classified as assets, liabilities and
shareholder’s equity. Together, they comprise the composition of the
two characteristics of wealth – the use and source of capital – and are
the first accounting dimension. It is important to observe that from a
temporal perspective, data presented on the balance sheet are a
measurement at a given point it time. It reflects the financial status
quo of an enterprise, which we could also understand as the then
current summation of accounts that shape the value cycle (Vaassen,
2002, p.38). At the liability side, shareholders invested capital and
possibly, at later points, dividend was distributed back, reducing
residual interest or net equity. Meanwhile, management uses capital
to acquire semi-permanent assets as to enable the production of
goods or the delivery of services to customers. At the assets side, their
value is accounted for together with other probable future economic
benefits obtained or controlled by the enterprise because of past
transactions or events. All the time, accounts like debtors and
creditors (or their American counter parts: receivables and accounts
payable) increase or decrease following the dynamics’ of business,
similar trends we may observe with cash, the only “hard” monetary
measure of assets value at current “price”, and inventories. From a
management accounting perspective, we expect that a certain rate of
growth in income or assets be reflected in the magnitude and
composition of assets and liabilities as a whole, and other performance
measures (Walsh).
17
The income statement also called the profit and loss statement lists
the firms’ revenues and expenses over a period of time. The last item
of the income statement shows the firms’ net income, which is a
measure of its profitability during the period. The net income is also
referred to as the firms’ earnings (Berk & DeMarzo, 2007, pg.27).
The first two lines of the income statement list the revenues from
sales of products and the costs incurred to make and sell the products.
The third line is gross profit, the difference between the sales
revenues and the costs. The next group of items is operating
expenses. These are expenses from the ordinary course of running the
business that are not directly related to producing the goods or
services being sold. They include administrative expenses and
overhead, salaries, marketing costs and research and development
expenses. The third type of operating expense, depreciation and
amortization, is not an actual cash expense but represents an
estimate of the costs that arise from wear and tear or obsolescence of
the firm’s assets. The firms gross profit net of operating expenses is
called operating income. Other sources of income or expenses that
arise from activities that are not central part of a company’s business
are next included. For example cash flows from the firms’ financial
investments. After these adjustments for other sources of income or
expenses, the result is the firms’ earnings before interest and taxes
(EBIT). From the EBIT, interest paid on outstanding debt and taxes are
deducted to get net income earned by the firm for the period. Net
income is often reported on a per-share basis as the firm’s earnings
per share (EPS) which is computed by dividing net income by the total
number of shares outstanding.
The income statement links the balance sheets at the beginning and
the end of an accounting period. Thus, at the start of a new
accounting period, the balance sheet shows the opening financial
18
position. After an appropriate period, the income statement is
prepared to show the wealth generated over that period. A balance
sheet is then also prepared to reveal the new financial position at the
end of the period. This balance sheet will incorporate the changes in
wealth that have occurred since the pervious balance sheet was drawn
up (Atrill & Mclaney, 2008, pg. 72).
The income statement sets out the revenue and expenses, rather than
the cash receipts and cash payments, for the period. This means that
profit (or loss), which represents the difference between the revenue
and expenses for the period, may have little or no relation to the cash
generated for the period. The cash flow statement is a summary of the
cash receipts and payments over the period concerned. The statement
is basically an analysis of the business’s cash (cash equivalents)
movements for the period. The relationship between the three
statements is that the balance sheet reflects the combination of
assets (including cash) and claims (including the shareholders equity)
of the business at a particular point in time. The cash flow statement
and the income statement explain the changes over a period of two of
the items in the balance sheet. The cash flow statement explains the
changes to cash. The income statement explains changes to equity,
arising from trading. ( Atrill & Mclaney, 2008, pg 155,157, 159).
Standard cash flow statements have three parts. First, cash flows from
operating activities are the net inflow or outflow from trading
operations after tax and financing costs. It is equal to the sum of cash
receipts from trade receivables, and cash receipts from cash sales
where relevant, less the sums paid to buy inventories, to pay rent to
pay wages etc. From this are also deducted payments for interest on
the business’s borrowings, corporation tax and dividends paid. Next
item is the cash flows from investing activities which concerns cash
19
payments made to acquire additional non-current assets and with
cash receipts from the disposal of non-current assets. These non-
current assets will tend to be the usual items such as buildings and
machinery. They might also include loans made by the business or
shares in another company bought by the business. The net cash
flows from making new investments and/or disposing of existing ones
also appear here. This section also includes cash receipts arising from
financial investments (loans and equities) made outside the business.
These receipts are interest on loans made by the business and
dividends from shares in other companies that are owned by the
business. The last part of cash flow statements is the cash flows from
financing activities. This part of the statement is concerned with the
long-term financing of the business. Here we are considering
borrowings (other than very short-term) and finance from share
issues. This section also shows the net cash flows raising from and /or
paying back long-term finance (Artill & McLaney, 2008, pg 157, 159,
160, 161).
20
In the same research eight-seven (87) per cent of small companies’
prepared profit and loss accounts and seventy-eight (78) per cent,
balance sheet. These key financial statements allow management to
monitor profitability of the business as well as its net assets.
Confirming the usefulness of cash flow information, the analysis shows
that seventy-three (73) per cent use bank reconciliation statement
and more than fifty-five (55) percent use cash flow statements and
forecast. However, other competitive performance measures
perceived in literature such as ratio analysis, industry trends and inter-
firm comparison are not widely used. Collis and Jarvis (2002) then
states that this may indicate that small companies experience
problems in gaining access to appropriate benchmarks, but could also
be the results of competitors filing abbreviated accounts which
reduces the amount of information available for calculating ratio and
making comparism. In addition, as many small companies operate in
the service sector, they occupy niche markets and may be less
concerned with competition than those in other markets.
Melse (2004), reports that ratio analysis provides an insight into the
financial health of a firm by looking into it liquidity, solvability,
profitability, activity and capital and market structure. Jooste (2004)
investigates that many authors agree that cash flow information is a
better indicator of financial performance than traditional earnings.
Largay and Stickney (1980) and Lee (1982) show that profits were
increasing, W.T. Grant and Laker Airways had severe cash flow
problems prior to bankruptcy. Jooste (2004) further states that users
of financial statements around the world evaluate the financial
statements of companies to determine the liquidity, assets activity,
leverage, profitability and performance. Users of financial statements
use traditional balance sheet and income statements ratios for
performance evaluation. Therefore, along with traditional ratios,
operating cash flow is also important when evaluating a company’s
21
performance (Jooste, 2004). Various literature states that the primary
purpose of the cash flow statement is to assess a company’s liquidity,
solvency, viability and financial adaptability. According to Everingham
et al (2003) operating cash flow ratios are indicators of performance.
They determine the extent to which a company has generated
sufficient funds;
• To repay loans;
22
Rural and community banks (RCBs), offer loans and/or technical
assistance in business development to low-income community in
developing countries. Therefore, RCBs should be an effective
development agent and alleviate poverty (OECD, 1996). One of the
central issues of development economics that governments and policy
makers are focusing attention on is how to improve the socio-
economic well being of the people and thereby, reduce deprivation
and misery (Englama and Bamidele, 1997).
The origins of RCBs dates back to 1976 when the Bank of Ghana (BoG)
initiated a move to establish rural and community banks with the
expressed purpose of providing both commercial and developmental
banking activities to meet the needs of the rural areas. Primary, the
objectives of the rural banks are to:
23
• Bring banking services to the doorstep of the rural population to
be able to monetise the rural economy and thereby, reduce the
size of money outside the banking system;
About sixty (60) per cent of Ghana’s population of twenty (20) million
are rural dwellers whose livelihood is dependent on agriculture and
often, are the worst affected by poverty. The financial sector structural
adjustment Programme has largely contributed to the revival of the
sector by strengthening the banks, improving the regulatory
framework and restructuring financially distressed banks through the
diffusion of new capital and management expertise. The rapid
transformation of Ghana’s banking industry has led to the
strengthening of rural banking institutions by developing, organising
and training communities to support capacity building in the rural
areas. Presently the financial system in Ghana is dominated by the
banking sector, in which all the banks are majoring in the retail
banking business, dealing mostly in short-term money instruments. In
addition to the high street banks, there are presently one hundred and
fifteen (115) rural banks with five hundred (500) branch network
(agencies) designed to serve farmers. The RCBs minimal market share
of 5.6 per cent might be due to staffing problems that had led to low
24
financial resource mobilisation, culminating in inadequate loanable
funds (Owusu-Frimpong, 2008).
25
Loan portfolio. Granting of loans is a major function of RCBs.
But such loans must be paid back if the institutions are to
continue to be in business. Thus, an RCB whose loan portfolio
is of acceptable quality and growing must be doing good
business. They compute the real value of loans, loan portfolio
as a proportion of total assets, and quality of the loan portfolio
using the ratio of provision for loan losses and doubtful
accounts to gross loans.
26
Accounting Concepts No. 1 (FASB, 1978). The three objectives, in
abbreviated form, are:
27
management would be desirable. This conclusion was recently
supported by the GAO (GAO, AIMD-96-98).
28
indicated that the objective of financial reporting is to provide useful
information to the users. Zairi and Letza (1994) concluded that the
purpose of the annual report is to convey information, which is useful
to those who have an active interest in the organisations, mainly
shareholders. Buzby (1974) demonstrated that the annual report could
be adequate and readable if the information contained in it is
presented in an understandable manner and grouped and organised
appropriately. Similarly, Wolk et al. (1992) contended that even if
users of annual reports are assumed to be knowledgeable, the
information itself could have different degrees of comprehensibility.
The annual report contains various sections that provide user groups
with information to facilitate their decisions. To ensure that the
corporate message is communicated to various users of corporate
information, the company makes every effort to ensure a correct
selection of information (Neimark, 1992)
Studies reported for developing countries (Solas and Ibrahim, 1992 for
Jordan and Kuwait; Wallace, 1988a, b for Nigeria; Abu-Nassar and
Rutherford, 1996 for Jordan; Chow and Wong-Boren, 1987 for Mexico;
Hatif and Al-Zubaidi, 2000 for Iraq; and Naser and Nuseibeh, 2003 for
Saudi Arabia) gave mixed results. Similarities and differences were
observed between developed and developing countries. Users in
developing countries do not perceive themselves as suffering from
difficulties in understanding the information in the annual reports.
29
Bowsher (1987) found that most users want an annual report to
contain other information which increases their understanding. Hay
and Antonio (1990) found that users of annual reports wanted highly
detailed disclosures. Anderson (1981) found that users desired
information on future prospects, company products, divisional
performance, the provision of management audit reports, and
publication of quarterly reports. Benston (1976) reported that financial
press and newspapers reports were considered to be the most
important source of information other than the annual report.
30
base economic decisions. The report clearly indicates the shift from
the stewardship function to a decision usefulness perspective.
In the UK, the Corporate Report (ASSC, 1975) was an early attempt to
discuss the decision usefulness perspective of financial reports. The
report identifies seven user groups of corporate financial reports,
including the equity investors, loan creditors, employees, analyst-
advisors, business contacts, the government and the public. The
report has influenced many later studies in the field. However, the
report was criticized as it was exclusive to large companies and the
uses of each user group were not explicitly discussed.
From the early 1980s, there has been increasing interest in the users’
needs and uses of financial information of smaller firms (Stanga and
Tiller, 1983; Page, 1984; Berry et al., 1987; Keasey and Watson, 1988;
Marriott and Marriott, 2000; Collis and Jarvis, 2002) and most of these
studies are located in developed countries. The key rationale for these
studies is the distinctive organizational and ownership structure of
SMEs and the environment in which they operate. Unlike large firms,
smaller companies have somewhat different objectives, motivations
and actions (Storey, 1994; Jarvis et al., 2000) and the separation of
ownership and control is not common (Carsberg et al., 1985; Marriott
and Marriott, 2000). As a consequence, there is little delegation of
control and the agency theory which is based on the relationship
between the external shareholders (the principal) and the
management (the agent) may not be considered appropriate. These
arguments lead to a fundamental issue considered as highly relevant
to small company financial reporting: “who should report what, to
whom, and why?” (Perks, 1993: cited in John and Healeas, 2000, p.
17).
31
of users of small company financial reports is perceived to be limited
(Chittenden et al., 1990). However, it is surprising that the conclusions
on the main users and their uses of small company financial
statements are quite diverse. The issue is likely to cause
disagreements as to what information SMEs should provide to their
users. Some studies (Page, 1984; Barker and Noonan, 1996; Collis and
Javis, 2000) argue that the main use of accounts is for management
purposes by the directors of the companies. Page (1984) examines the
use of the reports of small independent companies and concluded that
tax authorities are also a main user of small company information.
However, he also argues that: “employees have personal contact with
the proprietors and the role of the analyst/advisor group is very
restricted where there is no public market for the company’s
securities” (p. 272). Despite research identifying owner-directors and
taxation authorities as the main users of the financial statements of
small companies, accounting standard setting bodies, such as the
IASB, focus on general purpose financial statements and exclude the
specific needs of these two key users. Instead the needs of the users
of the financial statements of large companies dominate the standard
setting debate, resulting in a rather confusing situation for small firms.
Some studies (Carsberg et at., 1985; Deakins and Hussain, 1994)
argue that financial reports play a critical role in lending decisions of
banks, which are the main source of external finance of small
companies. Jarvis (1996) noted that venture capitalists, equity
investors and employees are also discussed frequently in the literature
as main users of small company accounts. However, he also suggests
that business contacts, such as the trade creditors should be
considered as a main user group of the companies. The diversity of
the above findings means that to some extent, fundamental questions
about the users and their uses of small company financial information
remains unanswered.
32
Although the literature on a user perspective of financial reports has
been established in developed countries, very little seems to be known
about this issue in transitional countries. With the development of a
separate financial reporting standards for smaller entities in the UK
(ASB, 1997) and in the international arena (IASB, 2004), it is necessary
to address this issue in the transitional economy of Ghana.
Recognizing that financial reporting practices in transitional economies
have some unique features compared to mature market economies
(Bailey, 1995; Scheela and Nguyen, 2004), research in this area is
likely to contribute to the economic development of the country and
fill the existing gap identified in the literature.
33
2.5.1 Vision
The bank’s short and medium term goals will be geared towards
deposits mobilization, customer care, growth and human resource
development, profitability, efficiency and increases in community
development assistance, to enable them attain their mission which
they have termed ‘journey to the top’. With motivation and training
packages for their staff through the establishment of staff
development policy, the networking of all agencies via the side area
network to improve efficiency, effectiveness and customer’s turn-out
time is expected to reduce from fifteen to ten (15 – 10) minutes. It is
also anticipated that payment of dividends will be tied to earning on a
share. With a well resourced internal audit department already in
place to ensure the safeguarding of the bank’s assets, monitoring of
proper accounts keeping and documentation of loans and advances
strict adherence to regulatory controls and development agenda to
support sanitation, education, health and environment issues will also
be well sustained during the period.
2.5.2 Mission
34
community banks and how their performance have been determined
from literature. Investor’s perception about using financial statements
from both developed and developing countries are then discussed and
then the organisational profile of the rural bank under investigation is
discussed.
35
CHAPTER THREE
3.0 Methodology
3.1 Introduction
36
This study adopts a pure qualitative research method. The rationale
for the choice of a qualitative approach stems from the nature and
context of the study. Qualitative research is used when researchers
seek to understand the context of the research matter in terms of how
and why it occurs (Cassell and Symon, 1994) and when the research
phenomena is emergent rather than prefigured (Creswell, 2003).
These features are present in this study: it is an exploratory study
providing an in-depth investigation to supply evidence of the users’
perceptions and it also attempts to identify and conceptualize the
relationship between the emerging themes grounded in the data.
Other reasons for the choice of method are the unreliability of
economic data and the problems in administering surveys in transition
economies (Hopper and Hoque, 2004) which rendered alternative
quantitative methods impractical. The qualitative research design is in
the form of inductive naturalistic inquiry and is part of the
conceptualizing process, namely conceptual framing (Llewelyn, 2003)
or grounded theory (Glaser and Strauss, 1967; Strauss and Corbin,
1998).
37
The research instrument designed for collection of the data for the
study was a questionnaire. This was designed by the researchers with
assistance from their supervisor. Some questions were designed on a
five point Likert scale of five (5) for totally agree to one (1) for totally
disagree. Other questions had a “Yes” or “No” answer, and others
were open ended for respondent to express personal views. This data
collection instrument was used because it is the best through which
accurate information could be elicited in a study of this kind where the
variable under investigation requires statement of facts and personal
opinions. Also in rural environment where both telecommunication and
postal systems are unreliable, this method was considered to be the
most effective in generating a high response and participation rates
and opportunity for feedback (Zikmund, 1994). Respondents had to
tick the appropriate column or select from the alternative answers and
also provide significant information through the few open ended
questions. The questionnaire for customers had nineteen (19) items
and eighteen (18) items for the supervising manager and the staff.
38
• Ability to analyze and interpret financial statements
According to Yin (2003) the field of qualitative research has six forms
of sources of evidence for collection data. The six forms are
documentation, archival records, interviews, direct observation,
participant observation and physical artefacts’. Documentation is
important for almost every case study. Documents can be letters,
memoranda, agendas, newspapers, and articles in mass media or
community news letters. In case studies, documentation is used to
confirm argument evidence from other sources (Yin, 2003). General
information about the bank has been found at their web pages and in
printed materials such as annual reports. Interviews are a narrative
method of collecting data. The interview consists of two or more
participants that engage in a conversation that constitutes a learning
process (Blaxter et al, 2001). The purpose of the interview was to
show a clear picture of the current situation of the bank. To better
grasp the research purpose, interviews provides a more in-depth
insight into the research area. By interviewing the research is limited
to fewer informants with rich information sharing (Denscombe, 2003).
According to Yin (2003), the interview is the most important source
when it comes to obtaining information within a case study. The
questionnaires were personally distributed by the researchers. The
researcher wrote a permission letter to the Head office of Atwima
39
Mpomua Rural Bank and all of its branches so as to be permitted to be
given the necessary information for the study.
Upon arrival at the bank and its branches, the researchers first called
on the deputy manager who in turn introduced the researchers to the
entire staff and solicited their co-operation. The researcher then
administered the questionnaire to those who were willing to complete
them and waited for the respondents to complete them. The
researcher also went to some schools around the location of the banks
for the workers who have their accounts with the bank to respond to
the questionnaires. By this procedure the researchers were able to
retrieve all the one hundred and eighty (180) questionnaires. This data
collection procedure enabled the researchers to have personal
interaction with the respondents and to explain the significance of the
study to them and also some of the issues on which their
understanding were clouded. Also, the informal interactions offered
vital information which gave the researcher better insight into the
prevailing conditions. The researcher again solicited information from
the Deputy Supervising manager by way of interviews and also
answering some information guide questions which was of great help.
40
A case study should start with a general analytical strategy that
provides the basis for what to analyze and why. Analyzing qualitative
data is about examining, categorizing, tabulating and recommending
the empirical evidence to address the initial propositions of the study.
The purpose of analyzing qualitative material is to make the material
more clear and distinct, making sure not to lose the extent of
information that the material includes (Yin, 2003).
41
CHAPTER FOUR
4.1 Introduction
This part of the study is about the analysis and discussion of data
collected during the investigation from investors and management of
the rural bank under study. The study focused on the knowledge of
financial statement of the various types of investors in the bank and
how management treated them. The order below was followed for the
analysis of the data
42
4.2 Investors perception of bank performance
Investors who took part in the survey were asked to give information
about their age, gender, level of education and length of time
investing in the bank. Table 4.1 and Figure 4.1 below give descriptive
statistics for the age ranges of the respondents and the corresponding
numbers and percentages. In all, one hundred and eighty responded
to the questionnaire.
18-24 42 23
25-30 51 28
31-34 21 12
35-40 6 3
41-55 45 25
56+ 15 8
43
Figure 4.1: Age of Respondents
Table 4.2 and Figure4.2 gives descriptive statistic for the sex of the
respondents. Sixty-two percent of the respondents were males and the
rest females.
Male 111 62
Female 69 38
44
Figure 4.2: Sex of Respondents
Table 4.3 and Figure 4.3 gives their level of education of respondents which show that
fifty-two percent had tertiary eduction, twenty-seven percent had seconday eduaction,
thirteen percent had middle school leaving certificate or junior high school and eight
percent had no formal education. This results surprises the researchers and does not
represent the views put forward in a study be Owusu-Frimpong (2008) which states that
rural banks major target groups are smallholder traders and farmers
and the banks act as intermediary between the government and cocoa
producers by purchasing government payment cheques from farmers,
who are expected to be illitrate or semi-illitrates investors of the bank since the bank is
located in a rural area. It may be due to the fact that the area happens to be a district
capital were most of the local governemt workers reside and also most of the teachers
within the district are located in that area and they happen to be the major investors of
the bank. This could also be due to the fact that most illitrates find it difficult to
understand the use of a study like this, hence do not find it necessary to get involved.
They also may be shying away from the researchers because of the dfficulty of reading
and writing. This is evident by the fact that alot of potencial respondents refused to fill
the questionnaires when approched by the researchers.
45
Level of Education Number Percent (%)
Tertiary 93 52
Secondary 48 27
MCLS/JHS 24 13
None 15 8
46
Years of Investing Number Percent (%)
5 years or less 96 53
Respondents also answered question on what influrnce thier decision to invest in the
bank and fifteen percent said performance of the bank was thier reason for investing in
the bank. Eighty-two percent said service delivery influrence their decision to invest in
the bank and three percent said physical structure of the bank influence their decision.
Table 4.5 and figure 4.5 gives further details statistical. This result is contrary to the
perception of the research that since the majority of the repondents indicated that they
have tertiary education and as such they would consider the performance of the bank, it
47
turns out that more customers had interest in the service delivery rather than performance
and physical structure.
Performance 27 15
Physical Structure 6 3
48
Type of Investment Number Percent (%)
Savings 63 35
Current 84 47
Fixed Deposit 2 1
49
given for totally disagree and 5 for totally agree. The mean
score was 2.6 which meant, with an average score of 3,
respondents did not have problems when investing in the bank.
Figure 4.7 show the statistical description. This result is
consistent with Neimark’s (1992) studies where companies
make every effort to ensure that the corporate message is
communicated to various users of corporate information with a
correct selection of information to facilitate their decisions. It
also agrees with study by Wolk et al. (1992). They contended
that users of annual reports have different degrees of
comprehensibility even if they are assumed to be
knowledgeable. Hence for annual reports to be useful to users,
they must comprehend it.
50
not have access to financial statements. The annual report contains
various sections that provide user groups with information to facilitate
their decisions yet only forty-three percent of respondents had access
to financial statement. This result confirms some studies (Page, 1984;
Barker and Noonan, 1996; Collis and Javis, 2000) which argue that the
main use of accounts is for management purposes by the directors of
companies, meaning managers don’t see the need to make financial
information available to investors. It is also consistent with Chittenden
et al., (1990) whose studies interestingly noted that since there was
no statutory requirement for public disclosure of small company
financial information, the number of users of their financial reports is
perceived to be limited. Figures 4.8 and 4.9 give their statistical
description. It’s also consistent with Hay and Antonio’s (1990) studies,
where users of annual reports wanted highly detailed disclosures.
Anderson’s (1981) study is consistent with this result when his study
found users desiring more information about companies’ performance.
51
Figure 4.8: Knowledge of Financial Statement
52
Figure 4.10: Analyse and Interpret financial statement
53
Figure 4.11: Influence of Financial Statements
54
and Tabb (1978), Day (1986), Yap (1997), Epstein and Pava (1993)
and Anderson (1981) which found various forms of financial statement
important to users also support this results. The result is also in line
with Zairi and Letza‘s (1994) study which concluded that the purpose
of the annual report is to convey information, which is useful to those
who have an active interest in the organisation, mainly shareholders.
It confirms studies by Daniels and Daniels (1991). Thiers concluded
that the information contained in financial statements is necessary
and useful. Sterling (1972) agrees with this result when he indicated
that the objective of financial reporting is to provide useful information
to the users.
Ten percent of respondent stated that the bank still uses manual
operating procedures. This result is supporting reports in the daily
graphic (Sept, 2010) which suggests the need to introduce modern
banking technology systems in the RCBs to make them more
competitive and financially self sustaining. Figure 4.12 show statistical
description of this result.
55
4.3 Result of Interview with Management
He stated that he agrees financial statements are the best tool for
evaluating the banks performance. These results are consistent with
studies conducted by Collis and Javis (2006) on financial information
and the management of small private companies in the U.K. were
most of the respondents stated that the most useful sources of
information are the various financial statements.
56
result agrees with Lee (1982) whose study on W.T. Grant and Laker
Airways showed that they had profits increasing on their financial
statements but had severe cash flow problems prior to bankruptcy.
CHAPTER FIVE
5.1 Conclusion
The purpose of this thesis has been to investigate the knowledge and
understanding of financial statement of investors in a rural bank in
Ghana who are semi-illiterates and illiterates. Secondly, to investigate
how management perceive their investors understanding of financial
statement. Data gathered and observations from the analysis lead to
the following conclusion.
57
consider is very important for them in order to make
investments decisions in the bank. Having access to financial
statements of the bank is equally important to investors so as to
know how well the bank was performing.
5.2 Recommendation
The findings from the research agrees that investors of the bank are
literates and know how to analyse and interpret financial statement
and hence management of the bank should make financial statements
readily available to them and it will likely increase their willingness to
invest more in the bank.
58
References:
• Atrill P., McLaney E., Accounting and Finance for non-specialists,
59
• Dang, D. S., Marriott, N., & Marriott, P. (2006), Users perceptions
and uses of Financial reports of small and medium companies
(SMCs) in transitional economies: Qualitative evidence from
Vietnam, Qualitative Research in Accounting and Management,
3(3), pg.
60
• The Ghanaian Times, Rural Banks Record Growth in Assets and
Deposits, September 6, 2010, pg. 34
• Yin, R.K. (2003), Case study Research: Design and Methods, 3rd
Ed., Applied Social Research Method Series, Vol. 5, Sage
Publications
APPENDIX
61
TOPIC: THE RELEVANCE OF FINANCIAL STATEMENT AND ITS
IMPACT ON ORGANISATONAL PERFORMANCE: A CASE STUDY
OF ATWIMA MPONUA RURAL BANK
You have been selected from among many others to respond to the set of
questions below. Your responses are very necessary to enable the researcher
find out how financial statement affects the organizational performance of
Rural Banks. You would be contributing towards a great cause if you answer
the questions as honestly, objectively and thoroughly as possible. Be assured
that your answers will be treated with strict confidentiality as the purpose of
this study is purely academic.
3. Profession/occupation………………………………….
4. Educational background
5. For how long have you invested in Atwima Mponua Rural Bank?
62
(a) savings account (b) current account {c}fixed deposit account
(d) others (please specify)
12. Have you ever had access to the bank financial statement before?
Yes/No
16. Does your bank provide you with the financial statement? Yes or No
17. The knowledge of the financial statement can influence your investment
in
the bank.
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18. The knowledge of a financial statement is relevant to every customer
of a bank .
19. Does the bank still use the manual way of banking? Yes or No
Thanks for making time to fill this questionnaire. Your effort is very
much appreciate.
64
NAME OF SCHOOL: SCHOOL OF MANAGEMENT, BLEKINGE
INSTITUTE OF TECHNOLOGY
Questionnaire to Management.
Dear Sir/Madam.
Instructions: please TICK the appropriate answer or give the response where
necessary.
……………………….
3. Age…………………..
65
7. How often are financial statements of the bank prepared?
(a) Monthly (b) Quartely (c) Semi-annually (d) Annually (e) Others
11. The operation of the company reflects the true nature of the financial
statement.
13. Which of the following ratios are used in assessing the performance of
the company?
15. Which type of Financial analysis does the company use in comparing
the financial Performance?...........................
(a) Trend analysis (b) ratio (c) vertical analysis (d) horizontal
analysis
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(a)Totally Disagree (b)Disagree (c)Cannot decide (d)Agree
(e)Totally Agree
67